Question

Are prepaid orthodontics expenses eligible for HSA reimbursment?

Forum|Forum|1 year ago
July 19, 2024
3 replies
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I just paid for my child's multi-year orthodontic treatment plan. I paid in-full my part of the cost of the treatment plan (the difference between the total cost of the treatment plan and what my insurance will pay). I have an HSA. Can I reimburse myself now for the full cost of the multi-year treatment plan from my HSA? Or do I have to wait until my child has finished the entire treatment plan to withdraw funds from my HSA? I've searched the internet and read through multiple IRS pubs and can't find an answer. It seems most FSA providers allow for a reimbursement of pre-paid orthodontics with a signed contract with the orthodontist (which I have) and a payment receipt (which I also have). I can't find any similar guidance on HSA withdrawals. Thank you.

Other

B

Bsch4477

Employee

You can use the HSA funds to pay future dental expenses if you get an itemized statement from the dentist attesting to the charges that will be made for qualifying dental expenses.

H

hti708Author

Thanks for the reply. I have a signed "Federal Truth in Lending Disclosure Statement for Professional Services Rendered" that I signed that has the patient's name, type of orthodontic treatment, estimated treatment time, and the part of the cost I'm responsible for (that's the amount I paid in full). Is that the type of document you're referring to as an "itemized statement?"

B

Bsch4477

Employee

That should do it.

O

Opus 17

Employee

This is a bit unclear in publication 502.

https://www.irs.gov/pub/irs-pdf/p502.pdf

You can't take a tax deduction for pre-paid future medical expenses. That is explicitly stated in publication 502. I assume that if you pay for an expense in 2024 and the expense occurs in 2025, you can deduct it in 2025, because that's "fair", but that is not explicitly stated in publication 502.

The rules for FSAs are a bit different than publication 502, and the tax regulations place the burden of making sure that the rules are followed on the benefit plan administrator, not the taxpayer, which is why you usually need to submit proof to the FSA plan administrator. However, for HSAs, allowable expenses for HSA are the same as allowable expenses for the deduction, and the burden is on the taxpayer to self-certify that the expenses are allowable.

I think you will be on safer ground if you only reimburse yourself from the HSA in 2024 for expenses incurred in 2024, and reimburse yourself for future expenses in the year they occur. Without doing a lot more research, I can't definitely say that taking full reimbursement now is not allowed, but I am not sure the situation is as the other volunteer suggested. The consequences, if you are audited and the reimbursement is disallowed, is the disallowed portion is subject to income tax plus a 20% penalty.

@dmertz @Hal_Al

H

hti708Author

That language in Pub 502 is what gave me pause about reimbursing the full amount I paid right now from my HSA. The difficulty with my child's orthodontic work is that we really have no way of knowing what expenses are incurred on each visit to the orthodontist. We paid one price that includes the current treatment plan (and any adjustments to that plan along the way until we are finished).

That's why I'm wondering if the safest bet (although not my preference) would be to wait to withdraw the entire amount once my child has completed the entire orthodontic treatment plan (which could be a couple of years).

O

Opus 17

Employee

@hti708 wrote:

That's why I'm wondering if the safest bet (although not my preference) would be to wait to withdraw the entire amount once my child has completed the entire orthodontic treatment plan (which could be a couple of years).

I think you can make a reasonable allocation. For example, if the program is expected to be 24 months, you could withdraw 1/24th per month, even if the treatment ends up going longer. The tax regulations allow this sort of allocation in other areas. Waiting until the end is certainly another allowable option.

M

Mike9241

from IRS PUB 502 medical expenses

What Expenses Can You Include This Year?
You can include only the medical and dental expenses
you paid this year, but generally not payments for medical
or dental care you will receive in a future year

from PUB 969 HSA

Qualified medical expenses. Qualified medical expenses
are those expenses that would generally qualify for
the medical and dental expenses deduction. These are
explained in Pub. 502, Medical and Dental Expenses.

thus I conclude the prepaid portion can't be reimburse by the HSA. You might want to ask the practioner if they will provide you with a statement of what portion of the prepayment was utilized.

another option - no authoritative support - is to prorate over the period of the proposed treatemnt so if it was 25 months that would be 4% for each month of treatment.